CFOs optimistic about economy, but worried about trade

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CFOs are feeling good about the economy overall, according to a new survey by Deloitte, although they expressed concerns about trade policy and geopolitics.

Deloitte’s CFO Signals survey for the second quarter found that 94 percent of CFOs rated current conditions of North America’s economy as good, a new high for the quarterly survey, while 52 percent anticipate better conditions in a year, down from 59 percent in the first quarter of the year.

Expectations for revenue growth increase from 5.9 to 6.3 percent in the second quarter, the highest level in nearly four years. Earnings growth expectations climbed from 9.8 to 10.3 percent, a three-year high. Expectations for capital investment slipped from 11.0 percent to 10.4 percent, but stayed at one of the highest levels in the past six years. CFOs’ expectations for increasing domestic hiring rose from 3.1 to 3.2 percent, a new high for the survey.

In terms of their business focus for the next year, the CFOs polled showed a bias toward revenue growth over cost reduction (67 percent versus 17 percent), a survey high, and the bias toward investing cash over returning it which remained among its recent highs (56 percent versus 18 percent). Their bias toward new offerings over current ones increased in the second quarter (40 percent versus 35 percent in the first quarter), and their bias toward current geographies over new ones increased slightly (59 percent versus 16 percent). The preference for organic growth over inorganic growth continued this quarter and reached a new survey high of 67 percent, compared to 17 percent for inorganic growth.

Despite higher recent volatility in U.S. equity markets, CFOs were less likely to say markets are overvalued in the latest survey, at 63 percent, down from the first quarter’s 76 percent and well below the above 80-percent levels from late 2017.

“Last quarter’s positive sentiment largely continued this quarter. Although own-company optimism and expectations for the European economy faltered a bit, CFOs’ confidence in U.S. equity markets appears to have strengthened slightly, stated Sanford Cockrell III, national managing partner of the U.S. CFO Program at Deloitte LLP. “In addition, perceptions of North America improved, hitting a new survey high.”

With global economic performance improving over the last several quarters, CFOs’ worries have shifted toward their companies’ ability to capitalize on opportunities and potential threats to continued economic performance. In the second quarter, CFOs expressed concerns about U.S. political turmoil and policy uncertainty, especially about trade policy. In terms of internal risks, talent concerns again topped CFOs’ lists, particularly around talent acquisition, quality and retention.

This quarter’s survey also asked CFOs a series of questions about their scope of responsibility and the roles they brought to their current positions. Many CFOs seem to be taking on broader responsibility for business planning, information technology and data, and risk. CFOs’ backgrounds are also changing, as most CFOs were likely to report having a prior role as business unit CFO, or a controller, or a role in FP&A or corporate finance, with more than 40 percent reporting each. Younger CFOs, though, were relatively more likely to cite investor relations and strategy roles. Apart from technical finance experience, just over 60 percent of the CFOs polled rated corporate strategy and investor relations experience among the top experiences that will be essential for their successors.

“Past quarters have shown that as megatrends such as data proliferation, analytics, and automation have put intense pressure on companies’ strategies and operations, the role of the CFO has been changing,” said Greg Dickinson, managing director of Deloitte LLP, who leads the North American CFO Signals survey. “Where a substantial understanding of IT used to be a nice-to-have for CFOs, it now seems to be an imperative for their expanding responsibilities.”

The survey also asked CFOs about the legacies they would like to leave for their companies, finance teams and themselves. Overall, they said they want to leave behind companies and finance functions that are world-class and positioned to perform even better after they are gone. On a personal level, they would like to be remembered as role models when it comes to serving as business partners, ethical leaders and strong talent developers.

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Economic indicators Deloitte